How to Invest Direct in Mutual Funds?

I have always stated that mutual funds (MF) are one of the best wealth creation products for the masses. These are one of the lowest cost products, well regulated and give you the benefit of diversification.

The good news for investors is from January 1, 2013 on-wards mutual funds on directive of SEBI have launched ‘Direct’ version of all existing mutual fund schemes.

What are ‘Direct’ Mutual Fund Plans?

Direct mutual fund schemes as the name suggest are for investors who invest directly with the mutual fund AMC.

Why you should prefer Direct Plan?

The direct plans have the same portfolio as their regular counterparts but the difference is in their expense ratio. In case of direct plans there is no brokerage or trail commission to be paid to intermediary [as the investment is done directly by investors] and this comes as saving for the investors in the MF scheme.

It has been just 3 months since launch of direct plans, so annual difference in returns between direct and regular plans is yet not clear. But estimates suggest direct plans could be could be cheaper by 0.25% to 0.75%. This means you can hope to get 0.25% to 0.75% more returns than the corresponding regular MF schemes.

It might not look very high savings but in long run this is good money. For example you would make additional Rs 1,250 to Rs 4,000 on Rs 1 Lakh invested for 5 years.

How to invest directly in Mutual Funds?

You can invest in direct plans of Mutual Funds both physically and online.

For Online you can invest through the respective Mutual Fund Websites. Most of Mutual Fund AMCs are offering online investment facility. You need either Debit card (which is activated for online transactions) or bank account which is activated for online transactions.

In case you are not comfortable with online investment option, you can download the application form from the respective MF website, fill it and submit it to either their Registrars address (Karvy/CAMS) or respective Mutual Fund Offices. In case the office is not near, you can also courier/post the filled up application form and cheque to the respective addresses.

In most Mutual Funds, you would need to do the first investment in physical form and would need to submit your KYC (Know Your Customer) document, a cancelled cheque and nomination form. Once you get the folio number, the subsequent investments can be easily done online.

The good thing is many large fund houses have started offering SIP, SWP facility online.

What is not Direct investing?

Here are some common channels of investing in Mutual Funds which are not considered as ‘Direct’ investment

Demat Account – Though you get the advantage of all investment through a single portal and consolidated portfolio view but investment through Demat account is not considered as direct investment.

Brokers/ Distributors/ Financial Planners – if you invest through your broker/ distributor or planner, the investment would not be considered direct.

Banks – Many people have the miss-conception that banks with similar names to Mutual fund AMCs are same entities. For example if you invest in HDFC Mutual Fund through HDFC Bank, it is not a direct investment. Here HDFC Bank is acting as broker to HDFC Mutual Fund and would get its commission.

Websites – I know of three websites which offer online investment in mutual funds. These are

fundsindia.com

fundsupermart.co.in

scripbox.com

The investment through them is not direct as they are brokers to the mutual funds.

Useful Tips:

As you can see above there is savings to be made but this comes at the cost of convenience. You would be ready to do the paperwork related to KYC, change of address, nomination, etc yourself. Though these are not very tedious and can be done yourself, but in case you are not comfortable with this then you should take services of an intermediary.

The selection of funds is the most important aspect of investing. So if you require help of any intermediary for deciding on which fund to invest, you are strongly recommended to avail their services.

All the SIPs that you had done directly earlier are invested automatically in Direct Plan of the respective scheme from January 1, 2o13.

You can switch from regular plan to direct plan of the same scheme but this would be treated as exit from the earlier scheme and investment in a new scheme. This might lead to exit load and capital gains depending on your investment tenure.

16 thoughts on “How to Invest Direct in Mutual Funds?”

HI, You have mentioned the below – “Demat Account – Though you get the advantage of all investment through a single portal and consolidated portfolio view but investment through Demat account is not considered as direct investment.”

Online Portals like Zerodha are now offering direct plans in 2017. What can you say about this.

There have been recent under-performance by the fund. You can select from other funds in the list. But remember there is NO guarantee that the fund you select would always out-perform. Until few months back Axis Long Term Equity was recommended by almost all advisers 🙂

Nice Article. I personally feel that with the large number of diverse, innovative and complex financial products available today and new ones being launched everyday, the direct mode of investing may be suited only for those who have a good knowledge of finance and have the time and energy to manage their own investments.

i am operating a ULIP Policy with Kotak life insurance since 2010. At present condition, the policy stands at (-)20000 and there is no sign of major recovery. Moeover still 4 months are left for completion of six year life term of the policy to gain 100% retuns. Kindly advise whether to proceed with this policy or not.

Sorry the query was not clear. But what I could understand your ULIP bought 6 years ago is in loss – should you continue? You need to check with Kotak insurance about the surrender benefit of the policy and then calculate if you should exit the policy and invest in mutual fund. Alternatively you can make your policy paid-up and stop further premiums.

Also note in most ULIPs the expenses are front loaded i.e. the charges are higher in the initial period and comes down with time. If that is the case it might not be bad to continue with the policy.

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Disclaimer

The website is not affiliated to any company, agent or brokers for selling/ recommending investments. All the information in the blog is for educational and informational purpose only. Please consult a qualified financial planner and do your own due diligence before making any investment decision.